Question 1

You are required to calculate Karen Clarke's "net capital gain" for the 2019/20 income year.Karen is not entitled to use any of the small business concessions in Division 152 ITAA 1997.

In addition to the transactions listed below, Karen also received salary income of $150,000 in the 2019/20 and an unfranked divided of $3,000 from BHP shares.

Karen has carried forward capital losses from:

the sale of a coin collection of $3,500, and

the sale of shares of $10,000

Karen had the following capital gains and/or losses (prior to considering any capital losses, indexation method or discount method

Initial capital loss of $7,000 on Jet Ski (acquired 3 March 2015; disposed 12 June 2020);

Initial exempt capital gain of $1,150 on a Painting (acquired 19 May 1990; disposed 12 June 2020);

Initial capital gain of $1,200 on Rare Book (acquired 5 April 2003; disposed 12 June 2020); and

Initial capital gain of $159,900 on Investment House (acquired 16 October 2010; disposed 12 May 2020)

Initial capital gain of $340,000 on Telstra Shares (acquired 16 July 2016; disposed 6 April 2020).

Pelican Bay Property

Karen signed a contract to purchase a house (on 0.2 hectares) at Pelican Bay on the Sunshine Coast on 15 November 2009 for $350,000. Ownership transferred to her on 15 January 2010. Karen lived in Pelican Bay property as her home from the 15^thJanuary 2010 until to 15 January 2015.

On 16 January 2016 Karen decided to move to Brisbane so that her children could attend an exclusive private school. She rented the Pelican Bay house to tenants from the 20 January 2015 and received approximately $25,000 per year in rent. The family moved into an apartment at Kangaroo Point which they rented through a local real estate agent.

In April 2020 Karen decided that her family had settled well into the Brisbane lifestyle and as a result she would buy a home in Brisbane. Shesold the Pelican Bay house for $800,000under a contract dated 1 June 2020. In relation to the sale, she paid a $16,000 commission to the real estate agent and $2,500 in legal fees to her lawyer. The ownership of the Pelican Bay house transferred to the new owner on 1 July 2020.

Springwood Property

On 10 January 1984Karen Clarkepurchased a block of land for $20,000 in Springwoodon which to build a house.After receiving many quotations, Karen signed a contract on21April 2000with Construct with Us Pty Ltd toconstructthe house.The house construction began on1 July 2000and was completed on the31^stOctober 2000at a cost of $95,000.

Instead of moving into the house, Karen rented it out to tenants. She continued to do this until she eventually sold the property for$720,000 under a contract dated 11 June 2020 with the ownership transferring on 11 July 2020.An independent valuation revealed thatthe land was worth $550,000 at the time of sale.